Penny stocks are usually not listed at the major stock exchanges like the New York Stock Exchange (NYSE) or the NASDAQ because they don't meet the listing requirements. A minimum number of shareholders, minimum assets, and file financial reports regularly is required for listed stocks. Also, the SEC or Securities and Exchange Commission also supervise them.
Usually traded on the OTCBB or the Pink Sheets are penny stocks. An electronic quotation system for over-the-counter securities is OTCBB or OTC Bulletin Board and it's not listed with one of the national stock exchanges. The only requirement is that the companies file financial reports to the SEC. If not, the company is removed from the OTCBB listing and the stock can only be quoted on the Pink Sheets. Not regulated or supervised by the SEC are the activities of the Pink Sheets.
No filings must be done at all if the company has less than $10 million in total assets or less than 500 shareholders.
Penny stocks are open to manipulation and scams because of these reasons. The stock price is usually far below $5 and market capitalization is very small as the companies itself are very small. Making it difficult to find verified information about the company, financial situation, and outlook is the lack of reporting requirements.
Taking advantage of this are many fraudsters and they publish misleading information to manipulate the stock price. Because of the lack of public interest and low number of shareholders the trading volume is generally low. Therefore having a dramatic effect on the share price is few buy or sell orders.
The biggest advantage of penny or micro-cap stocks is the low liquidity. Almost never moving several hundred percent within a few days is a listed stock but a penny stock can easily do that. Acquiring a big amount of shares with a small amount of money is possible because of the low share price. On the performance, little price increases or decreases can have a big impact.
Often attracting novice traders are low stock prices and limited capital requirements but penny stocks are playing a field for only the experienced investors. Penny stocks are investments with high risks. Many companies won't probably succeed and go bankrupt. Therefore, the shares will then end up as worthless.
Many penny stock companies have no or very limited working capital, assets or are in development stage for months or years before any revenues can be expected. For days or weeks, you probably can't sell your shares or at a big discount since there is limited liquidity.
Usually traded on the OTCBB or the Pink Sheets are penny stocks. An electronic quotation system for over-the-counter securities is OTCBB or OTC Bulletin Board and it's not listed with one of the national stock exchanges. The only requirement is that the companies file financial reports to the SEC. If not, the company is removed from the OTCBB listing and the stock can only be quoted on the Pink Sheets. Not regulated or supervised by the SEC are the activities of the Pink Sheets.
No filings must be done at all if the company has less than $10 million in total assets or less than 500 shareholders.
Penny stocks are open to manipulation and scams because of these reasons. The stock price is usually far below $5 and market capitalization is very small as the companies itself are very small. Making it difficult to find verified information about the company, financial situation, and outlook is the lack of reporting requirements.
Taking advantage of this are many fraudsters and they publish misleading information to manipulate the stock price. Because of the lack of public interest and low number of shareholders the trading volume is generally low. Therefore having a dramatic effect on the share price is few buy or sell orders.
The biggest advantage of penny or micro-cap stocks is the low liquidity. Almost never moving several hundred percent within a few days is a listed stock but a penny stock can easily do that. Acquiring a big amount of shares with a small amount of money is possible because of the low share price. On the performance, little price increases or decreases can have a big impact.
Often attracting novice traders are low stock prices and limited capital requirements but penny stocks are playing a field for only the experienced investors. Penny stocks are investments with high risks. Many companies won't probably succeed and go bankrupt. Therefore, the shares will then end up as worthless.
Many penny stock companies have no or very limited working capital, assets or are in development stage for months or years before any revenues can be expected. For days or weeks, you probably can't sell your shares or at a big discount since there is limited liquidity.
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